whateverworks

Fannie May but most likely won't.

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Recover anytime soon, that is. I said everything there is to say about FNM in my blog entry last November when it was the Question of the Week at that time. Nothing has changed except, perhaps, for the worse. As of today the price-to-book ratio is only 1.17, which at first glance looks like decent value. Unfortunately FNM is facing yet more problems to come. Even if the government does manage to bail out Fannie Mae to the extent that it does not go under completely, it won't be a money-making bet for years. When I say "the government" I mean, of course, we-the-taxpayers. And at some time the public may tell their elected representatives that enough is enough -- just let Fannie go belly up. Or, with today's game of passing around bundles of debt like a hot potato, it is more likely that FNM gets merged into something else at cents on the dollar.

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A Case for CASY (Question of the Week)

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I wish there were a Casey's General Store here in Colorado so I could visit one. In spite of their aggressive growth plans, they haven't reached the Rocky Mountains yet; so I'll have to rely on financials when deciding whether to invest. They look reasonable to me despite their profit-margin drop recently due to the price of gas. Oddly, the stock price has recently surged despite their announcement of more modest profits. Perhaps investors were heartened by the fact that at least they still HAVE profits and a dividend. In addition, they have a both a DRIP and a Direct Purchase Plan which is a good investor relations move.

I'd like to compare Casey's with 7-Eleven but unfortunately the latter is private. Looking at "Competitors" in Yahoo and Google finance, larger companies such as Kroger, Safeway and Winn-Dixie are listed. IMHO that is comparing apples to oranges because the customers are different. A few years ago, I read an article about convenience stores that said most of the food products sold there were consumed minutes after being bought. It is the store of preference for laborers who need to fill up the truck with gas and fill up themselves with food as quickly as possible between tasks. I can confirm this because my boss owns both the investor relations firm I work for and also a small landscaping/snow-removal company. The company credit cards are used for gas and food-on-job.

Casey's offers a MasterCard, with no annual fee, good for rebates on everything but higher on items bought at Casey's (including gas). If they were in this area, would my boss get the card and mandate using Casey's? 7-Eleven recently introduced a credit card but offers no details on their Website about possible savings when buying their products. In 7-Eleven's favor, they sell money orders and prepaid phone cards, including an international one. Unfortunately they don't give details on long-distance rates; however if they have exceptionally good rates to Mexico that is another point in 7-Eleven's favor as a competitor. The biggest question is where the customer can get the most bang for the buck.

Casey's is somewhat different from other convenience stores per the company description at Reuters. "The Company's General Stores seek to meet the needs of residents of small towns by combining features of both general store and convenience store operations.... Each Casey's General Store typically carries over 3,000 food and nonfood items. The products offered are those found in a supermarket, except that the stores do not sell produce or fresh meats and selection is limited to one or two well-known brands of each item stocked."

This looks like a good niche to me. When the landscapers I mentioned did a job in the mountains last summer they barely broke even due to costs. They had the choice of spending an arm and a leg eating at higher-priced tourist restaurants or spending a lot on gas to get to a grocery store. (Better planning would have helped, of course; however, being used to city and suburbs, they were surprised by the rural environment.) Hometown Mom and Pop stores have disappeared because they cannot compete in pricing. In spite of gas costs, rural residents will save money driving to the supermarket in the nearest large town. Although with rising oil prices this may no longer be true, the Mom and Pops are long gone! I am betting that Casey's has the right idea at the right time. Of course competition will move in but Casey's has a good head start.

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Buys and Sells with a Mid/Long Term View

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Here are some more changes in my 2 funds over the last couple of months. As I intend to keep the SLO Fund at Marketocracy permanently, trades here are based not only on maximizing gains during the course of the contest but also the long-term view.

SLO FUND SUMMARY

Sells

FXI iShares FTSE/Xinhua China 25 Index Fund - I still like this ETF, but wanted to use all my ETF allocation for short ETFs.
UN Unilever - Located in the Netherlands, this was one of my "food" plays. However it has not been doing well lately.
VE Veolia Environnement - one of the few "water" stocks I found but not doing so well in spite of that fact. I am hard put to find another water stock to replace it with.
IVGN Invitrogen (biotech) The company has many ups and downs depending on recent news. At the moment it's down; so sold out of the SLO fund. But kept it in my MagicMicroCaps fund because I still find it more promising than other Micros in this economy.
SNY Sanofi-Aventis (biotech) With disappointing news the stock keeps going down.
HDB HDFC Bank (India) - stock not doing so well lately and investors are hesitant about banks worldwide.
CHL China Mobile - still a leader in its field but it looks like China is encouraging additional, smaller companies to compete with it.

Buys

CASY Casey's General Stores, DLTR Dollar Tree and BIG Big Lots are retail bets for our changing times. I found DLTR and BIG when researching competitors to WMT but did not discover CASY until I read the Question of the Week.
GFI Gold Fields Ltd. (another gold company) and QID ProShares UltraShort QQQ (another short ETF). As you can see I am betting on the dollar and the economy to continue downward.
PBR Petroleo Brasileiro S.A. This is a stock I'd sold earlier but which continued to go up. Long term, I believe Brazil is a good oil bet so I bought it again. Should never have sold!
GGB Gerdau This is another stock that I'd sold earlier. I bought more of this Brazilian steel company at current pricing when Brazil said it will give preference to companies in its own country when building the additional equipment necessary to exploit the new underwater oil it has found.
BUCY Bucyrus Int'l. This company produces mining equipment for the extraction of coal, copper, oil sands, iron ore, and other minerals. I think it should do well with our desperate search for more energy.
TTES T-3 Energy Services With products for oil and gas wells, TTES is a another bet on the need for more energy. I already had this company in my MagicMicroCaps Fund and now bought some for the SLO Fund.

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MAGICMICROCAPS FUND SUMMARY

Sells:

On April 18 I sold INX Inc. (INXI) because it had fallen steadily for the past 12 months. This was really bad timing! In May the company announced good news and the stock surged up again.

I'd bought Northern Technology Int'l. (ticker NTI, soon to be NTIC), in April for $7.07. Sold it May 6 at $7.56 when it took a sudden surge upward. Boy, was this another case of bad timing! Later in May there was an additional, unexplained, huge increase. Then, in June, the company announced they'd been approved for trading on NASDAQ.

I sold a couple of stocks I'd held for a long time. But it is time to let them go:
LTFD - Some people say that bingo does OK during recessions. But I think not as a stock because investors will believe all recreation is down.
TSCM TheStreet.com - This stock has done well for me but I believe it will now be flatter due to increased competition from sites such as SeekingAlpha.com.

When a company has bad news, when it is in an unpromising industry for our troubled times, when it is down for the past 12 months or when the stock falls without apparent reason I try to sell quickly. So I also said goodbye to:
BOLT - Bolt Technology, HMSY - HMS Holdings, TRGT - Targacept, ZONS - Zones Inc.

Happier sells were those which occured when I sold half because the stock had risen 100% This a general policy I try to stick to. The companies are:
GHM - Graham Corp. and JST - Jinpan Int'l.

Buys

As usual in this bear market, I have a hard time finding good microcaps to buy in order to use up the large amount of cash which keeps accumulating due to sells. However I've found a few:
SEED - Origin Agritech Ltd. (Chinese company, hybrid crop seeds). Thanks to Vijay Gondhalekar for mentioning SEED in his SLO blog.
ATAI - ATA, Inc. ADR (computer-based testing services in China)
EXK - Endeavour Silver Corp. (Canadian company operating in Mexico)
CPSL - China Precision Steel (Chinese company, high precision cold-rolled steel products)
AFOP - Alliance Fiber Optic - It's almost time for my "annual review" of this company. As the stock has fallen, I looked at it with the prospect of selling what I already had. However, I took a real gamble and bought more. It is marketing internationally and its revenues just keep growing. It is profitable, has lots of cash, and stock is really bargain priced. Of course some shareholders may know something I don't or totally irrational buying and selling could send the price lower. That's the problem with microcaps.

That's about it for now. On a last, encouraging note for my SLO fund, the market is going down again today. I am betting on an overall bear market for the rest of 2008 and at least part of 2009 and have tried to optimize for this. On a really bad market day my fund goes down too; however it often happens that other people go down more.

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HEI is Low

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I am debating whether to sell some (or all) of HEICO Corp. (HEI) which is at present the worst-performing stock in my StrategyLab Fund. On July 31, 2007, this was one of my very first picks for SLO1. At that time I was looking for both value and growth (still am) while avoiding US stocks in housing, commercial REITs, utilities, banks, brokerages and insurance companies due to the upcoming financial crisis. (As a side note, utilities subsequently did OK in spite of a prediction that they would be adversely affected by a credit crunch.)

Heico, which describes itself as an "aerospace, defense and electronics company", did relatively OK in the bear market until a recent, huge, unexplained stock plunge. Although they issued guidance for '08 indicating they'd be slightly below analysts' expectations, there was no really bad news that I could see. On the contrary, the quarterly EPS was up from this time last year. Well, the decline could be part of the general airline industry sector drop.

Basically, this company makes discount, brand-knockoff, airplane parts. As the Wal-Mart of the aircraft industry I think it should do well in coming months. Airlines will be looking for the cheapest parts they can get. They'll refurbish old planes instead of buying new. When they sell off some of their fleet at bargain prices the new owners will want to renovate inexpensively.

Nevertheless, the stock is down.

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HEI is Low

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I am debating whether to sell some (or all) of HEICO Corp. (HEI) which is at present the worst-performing stock in my SLO Fund. On July 31, 2007, this was one of my very first picks for SLO1. At that time I was looking for both value and growth (still am) while avoiding US stocks in housing, commercial REITs, utilities, banks, brokerages and insurance companies due to the upcoming financial crisis. (As a side note, utilities subsequently did OK in spite of a prediction that they would be adversely affected by a credit crunch.)

Heico, which describes itself as an "aerospace, defense and electronics company", did relatively OK in the bear market until a recent, huge, unexplained stock plunge. Although they issued guidance for '08 indicating they'd be slightly below analysts' expectations, there was no really bad news that I could see. On the contrary, the quarterly EPS was up from this time last year. Well, the decline could be part of the general airline industry sector drop.

Basically, this company makes discount, brand-knockoff, airplane parts. As the Wal-Mart of the aircraft industry I think it should do well in coming months. Airlines will be looking for the cheapest parts they can get. They'll refurbish old planes instead of buying new. When they sell off some of their fleet at bargain prices the new owners will want to renovate inexpensively.

Nevertheless, the stock is down.

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